• Choose suppliers carefully, and conduct regular audits and inspections if possible to ensure that their commitment to business interruption prevention matches yours.
◦ Check the Moody’s or S&P rating of potential suppliers.
◦ Verify suppliers’ insurance coverage. Remember, a certificate of insurance is evidence of insurance only when the certificate is written, and not at any time after that moment.
• Clearly define contract scopes and draft contracts carefully with the assistance of specialized legal counsel. Consider indemnification, hold harmless and defense agreements.
◦ Learn and understand the extent of your exposure, and create a business interruption worksheet to quantify as accurately as possible the effect these exposures could have on revenue and profit.
◦ Re-evaluate the worksheet on a regular basis to account for changes in the market or your business model. Focus not only on the inherent risk of a broken link in the supply chain, but the interdependencies between links throughout the chain.
◦ When there is a global event, examine your supply chain to see if any part of it might be affected.
◦ Be aware of developing risks, e.g., cyber warfare, climate change, nanotechnology, synthetic biology.
• After identifying risks, put a plan into place. While it is easy to prioritize speed over follow-through, identifying risks is of little use if steps are not taken to mitigate these risks. Plans might include these components or others:
◦ Business continuation plan
◦ Geographical diversification of servers
◦ Plan to relocate business to an alternate location
◦ Sourcing of goods from alternate suppliers
Of course, some supply chain partners may have several locations that could keep the flow of raw materials going in the event of a disruption. Investigating these factors is an important component to creating a supply chain risk management plan.
• Transfer your risk by purchasing appropriate coverage, which could include the following, depending on your exposure mix and risk tolerance:
◦ Business Income Disruption
◦ Marine and Cargo coverage for long voyages taken by commodities, components and finished products
◦ Liability coverage, including Commercial General Liability, and Directors and Officers Liability
◦ Other special endorsements specific to your exposures
◦ Carefully read your policy and ensure that it includes coverage of loss of supplier, stoppage of supply and interruption of service.